U.S. Can Rescue Its Troubled Cities by Abolishing Them

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use.Read More.

Sunland Park, New Mexico, a small and impoverished suburb of El Paso, has made “news of the weird” headlines lately for its official corruption. Daniel Salinas was elected mayor in March, but has been legally barred from taking office. Why? Because he is under indictment for 33 felonies.

One accusation is that Salinas used public funds to pay the city’s lobbyist to have a political opponent filmed while receiving a lap dance at a strip club, and then tried to extort his rival into leaving the race. Salinas, who has pleaded not guilty to all charges, has also boasted of his ties to drug cartels, the district attorney says.

Various Sunland Park employees, including the city manager and the acting police chief, had to quit because they, too, are under felony indictment. The previous mayor stepped aside after admitting he was drunk when he signed a $1 million contract. And now the state has taken over Sunland Park’s financial operations, after issuing a scathing audit. The report, 81 pages of examples of fraud and incompetence, says the city is in “a complete state of financial disarray.”

The question is: Why does Sunland Park exist at all? More precisely, why does it exist as an incorporated city?

Sunland Park

Sunland Park’s population of 14,000 is poor and marginalized; 47 percent of residents live below the poverty line, including 63 percent of children. Per-capita annual income is only $9,700, less than half the New Mexico average. Only half of adults aged 25 or older are high-school graduates; 42 percent of residents report that they don’t speak English well.

This presents two challenges for governing the city. One is that there is a weak tax base to support public services. That challenge is surmountable. States can use local aid payments to prop up poor jurisdictions. New Mexico is particularly aggressive in such equalization, with the state government financing more than 80 percent of the cost of K-12 education.

But the other challenge is much more difficult to surmount: municipalities such as Sunland Park tend to have low civic engagement and are ill-equipped to hold their officials accountable. Only 14 percent of Sunland Park’s voting-age residents participated in the March election that Salinas won.

Good leaders aren’t likely to be drawn to the thankless job of running these kinds of places. It’s a lot more fun to be the city manager of a prosperous jurisdiction, where you have ample resources to work with. Large, troubled municipalities such as Detroit offer the challenge of restoring a city’s greatness. But who aspires to be the city manager of Sunland Park?

One obvious answer: people who see such cities and towns as exploitable. We saw this in Bell, California, a lower-income suburb of 38,000 in Los Angeles County. Bell, until recently, paid its city manager $800,000 a year and its part-time city council members almost $100,000. Or in neighboring Maywood, which filled its police department with officers who had been pushed out of other jurisdictions for misconduct and corruption.

And we see it in Central Falls, Rhode Island (population 19,000; per-capita income, $10,800), which is now in state receivership. The city has its own pension fund, whose balance it ran down to zero due to decades of mismanagement. The receiver has, as a result, cut retirees’ pensions, in some cases by as much as half. Meanwhile, the city’s longtime mayor is under federal investigation on allegations that he directed city business to a friend in exchange for kickbacks.

Central Falls

When a headline-grabbing event occurs, such as the exposure of Bell’s outrageous salaries or the exhaustion of the Central Falls pension fund, these cities get state-level attention and supervision. But that typically comes only after corrupt officials have had years to mismanage and exploit their cities.

The best way to protect residents of these impoverished places is to end the jurisdictions in their current form, reconstituting them in such a way that officials are more likely to be held accountable. Three such options are dissolution, merger and state takeover.

In states with strong county government, cities and towns are unnecessary for the provision of local services, and many residents live in unincorporated areas. The usual argument for forming a city or town is that an additional layer of government will be more responsive to local needs. But if a city has a history of corruption and mismanagement, it’s worse than superfluous; the residents are better off dissolving the municipality and going under direct county government.

This is essentially what has happened in Maywood. The employees, especially its police, had such a reputation for corruption that the city could no longer obtain liability insurance. As a result, while Maywood didn’t disincorporate, it dismissed almost all municipal staff and contracted out its government. The Los Angeles County Sheriff’s Department now polices Maywood by contract, and neighboring cities provide other services.

Under the merger option, troubled cities and towns can be wedded to larger ones with healthier civic institutions. As Central Falls was entering receivership, one option that was floated was to merge the city with neighboring Pawtucket. Unsurprisingly, the challenge is to get the other party to agree: Pawtucket wasn’t likely to take on its basket-case neighbor without financial inducement. Instead, Central Falls remains separate but under state management.

In Sunland Park’s case, the obvious candidate for a merger would be El Paso, Texas, were it not for their location in different states. Instead, the state has started to manage Sunland Park’s finances, allowing it to clean up the mess. But the state can’t run Sunland Park forever, and it’s not obvious that the city has civic institutions that will allow it to return productively to local control.

Union Opposition

Strong receivership laws, such as one recently enacted in Michigan, have come under fire from public-employee unions. They don’t like that state officials are allowed to void public-employee contracts over the objections of local officials and unions. But that is exactly why such laws are important: They put cities under management with the power to make necessary, but politically difficult, choices.

Control boards that usurped the power of city councils were essential for the fiscal turnarounds of New York in the 1970s and Washington in the 1990s. The experience of having been taken over has also improved the culture of fiscal management in these cities, meaning that locally elected officials have become more prudent in managing budgets.

Receivership laws can similarly promote sound budgeting in smaller municipalities, but only if the threat of takeover is credible.

Some of the largest and most troubled U.S. cities are getting better. Mayors such as Cory Booker in Newark, New Jersey, and Dave Bing in Detroit are taking steps to reduce crime and return investment to once-great cities. But saving Detroit and Newark are projects that can draw support from the remnants of an urban elite that is engaged in making these cities better, and that can attract talented people like Booker and Bing.

There’s no Cory Booker in the offing for Sunland Park. The right question to ask isn’t who can save Sunland Park, but how to save its people. The best answer is to abolish Sunland Park as a unit of government altogether.

(Josh Barro is a contributor to Forbes.com and a fiscal-policy analyst based in New York. The opinions expressed are his own.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use.Read more